Budget 2013

Osborne’s budget was not good for him and the Tories, and they were partly lucky, and partly cunning as they buried in stories that focused on other issues. There were four headline issues to consider, Macroeconomics, Tax, Housing and Beer.

The most important of these is the Macroeconomics. Since he and his supporters selected his theories as to how the economy works to permit them to do as they wanted, which was cut both taxes and public sector expenditure, the fact it isn’t working leaves them no where to go. The Bank of England, the IMF, the Credit Scoring Agencies , his own created “Office of Budget Responsibility” and even his government colleague Vince “we’ll read the general theory once a year” Cable argue that government policy is making things worse. The Government needs to increase spending on infrastructure projects, especially housing which he has done to a risible extent; the cuts to the public sector wage and benefit bills reduce aggregate demand and make things worse. For those in doubt here’s David Blanchflower, at the New Statesman, and .here he is documenting the retreat of Osborne’s economic theorist allies.

On income tax, he continues the ‘rich posh boys’ policy of benefiting themselves. Like the Liberal Democrats, he has, of course, refused to follow Labour’s proposal, who proposed the re-introduction of the 10p lower tax band, funded by a Mansion Tax. Here’s Left Footforward, arguing that the raising the limit is a policy designed to lock in the Liberal Democrats middle class voters, benefiting people earning between the 40% marginal rate threshold and £100K, when the claw back starts, causing those between £100K and £120 to pay a 60% marginal rate, 15% more than those earning more than £150K. While sympathy with these tax paying stakhanovites will be limited, the existence of this tax speed bump shows that the Tories have little interest in tax fairness, the billionaire’s give-away is just that, a reward for being rich, not for hard work. It should be noted that this year, the claw back starts at the 40% rate, people earning over £41,451 will be paying the higher rate of tax.

The best answer for fairness and work motivation would be tax credits, a minimum wage and full employment so all those that can work do.

Interestingly, he did consider housing, the one area where he might have done something to ‘get the economy moving’, but he proposed changes in Housing Finance. (I believe that Housing Finance is a crucial area of reform but Osborne’s plan won’t fix much.) He announced new public i.e. taxpayer support for mortgages; they plan to guarantee mortgages against default. The hope is that mortgages will become cheaper, since the lenders won’t have to fund defaults any more, it will reduce the cost to the lender and thus to the borower. The problem is that this is a hope, we are unclear if even given a guarantee whether the lenders will just lend to those who can’t pay. They have previous form. Here’s the Daily Mash, in an article titled, “This housing boom will be perfect”, explaining the policy further. The Mash reports that Osborne,

….told MPs: “The key difference this time is that I am making it much easier for people with no money to get a mortgage.”

Secondly, the proposal does nothing on house prices. The Tories and Lib Dems are in a bind, and I am unsure that the Labour front bench have the courage to avoid this fear either. They can’t adopt a policy designed to further reduce the housing price bubble; it would pauperise their voters, but it’s what’s needed. Houses are too expensive to buy and rent.

As a Londoner, I know that the failure of the London Housing market to fall in price, bolstered by foreign savings, looking for a safe haven and high rate of return, and rich foreign residents, while prices elsewhere fall makes moving to London to work prohibitively expensive.

However the story that held the headlines for the next few hours was that he took a penny of the price of a pint of beer, this tweet,

 

Buy 425 pints, get 1 free! Fantastic, thanks George.

— Discovering London (@PeteBSW1) March 20, 2013